Apple fundamentals, not lawsuit woes, will drive stock long-term: Analyst

The European Commission has opened non-compliance investigations into Alphabet (GOOG, GOOGL), Meta (META), and Apple (AAPL) over their platforms' policies. Apple is also facing a similar investigation from the DOJ over antitrust rules. Despite these investigations, Argus Research has reiterated its Buy rating on Apple with a $230 price target.

Argus Director of Research Jim Kelleher joins Yahoo Finance to discuss the lawsuits against Apple and why he is still bullish on the tech giant.

Kelleher tells investors where to direct their attention amid the company's legal woes: "What I'm focused on right now is the fact that Apple seems to be turning around its operations. If you look at 2023, the stock was up 48%, and yet, at this time a year ago, in other words, at the fiscal half-year mark, Mac sales were down in double digits in revenue. iPhone sales were down about 5%. Overall revenue was down. I know the street consensus for this year is for slightly down earnings, but if you look at the reality of the first half of this year, you see that mac sales are up slightly, and you'll see that iPhone sales are up a few percentage points, and they're doing well in every region, excluding greater China."

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Nicholas Jacobino

Video Transcript

SEANA SMITH: Another crackdown on big tech. This time, coming from the EU. The commission going after Meta, Alphabet, and Apple. The statement saying that the EU has, quote, "opened non-compliance investigations under the Digital Markets Act into Alphabet's rules on steering in Google Play and self-preferencing on Google Search, Apple's rules on steering in the App Store and the choice for screen for Safari, and Meta's pay or consent models."

Let's talk about what this means for the big tech giant. For Apple, specifically for that, I want to bring in Jim Kelleher. He is Argus director of research here to weigh in.

Jim, it's good to see you. So I know you have a buy rating on Apple. You had that buy reading, reiterated that buy rating following the legal update that we got from the DOJ lawsuit against Apple last week. How are you looking at the fact that-- or what does this potentially mean to Apple's bottom line, the fact that now you also potentially have more pressure coming from the EU as well?

JIM KELLEHER: So good morning, Seana and Madison. What I would, generally, say is we've followed a lot of companies that have spent a lot of time in the courts over the years, such as Qualcomm. And these things do tend to drag on for a long time, when the government feels that there are unfair practices.

What I would say is, I expect over the long term, when I do expect this to take a while to play out, Apple will negotiate and grant some degree of openness to its ecosystem. At the same time, the immense core of Apple and iOS users is going to stay loyal to the company.

That's what I'm thinking right now. The impacts on the bottom line are a little hard to quantify. Just looking at Apple's response to the DOJ complaint, they, basically, didn't say, we didn't do it, nor did they say, we're not going to do it in the future.

They stood on their principles of how they operate their ecosystem. And said, we're always interested in the security of our devices, first and foremost. So I would look really at the Apple fundamentals. And I'd be willing to discuss those in a moment as being more indicative of the near-- I should say long-term stock drivers.

MADISON MILLS: Well, I want to stay on the investigations for a second, because I'm curious if this EU investigation to you felt like a bigger deal than what we saw here in the US.

JIM KELLEHER: All right. Well, on a preliminary basis, it looks as if they're also going after the fact that the App Store seems too inclusive, that developers are under compensated, that there's an effective firewall preventing the apps from working as well or working outside the App Store.

So I think there will be negotiations all down the line, as this thing unfolds. And Apple will give a little. And EU will give a little. And DOJ will give a little. And, ultimately, the Apple-- the velvet rope will be let down a little bit. The Apple ecosystem will be a little bit more open. But, ultimately, I think Apple will do everything in its power. And I think it does have some power to preserve most of its ecosystem.

SEANA SMITH: Jim, I'm curious, at least, with the antitrust case here in the DOJ. There has been some worry starting to trickle through what Apple might be potentially forced to reveal in terms of their business offerings, because we know they're tight lipped. And we don't really get a good look at that.

Do you think they are going to be able to maintain some of those confidential arrangements? Or how do you see that potentially playing out?

JIM KELLEHER: Again, I think these are things that are a little more on the sidelines. Apple, I don't think there's enormous smoking guns in there. I don't think Apple is behaving unethically. I think they've been operating in the same way they've always been operating.

So I'm not expecting big revelations. The confidentiality is going to unmask some horrendous goings on. What I'm focused on right now is the fact that Apple seems to be turning around its operations. If you look at 2023, the stock was up 48%. And yet, at this time a year, ago, in other words, at the fiscal half year mark, Mac sales were down in double digits in revenue. IPhone sales were down about 5%. Overall revenue was down.

Now, I know the Street consensus for this year is for slightly down earnings. But if you look at the reality of the first half of this year, you see that Mac sales are up slightly. And you'll see that iPhone sales are up a few percentage points. And they're doing well in every region, excluding greater China. And that's as expected.

So I think we're going to see a couple surprise quarters coming forward. And I think we'll do well from here. And devaluation-wise, the stock's trading in line with its five-year historical multiple at a time when big tech names are trading at huge premiums to where they've traded in the past five years.

MADISON MILLS: Right. But it's interesting to note that Apple's stock is down about 8% year-to-date still, though, Jim.

Thank you so much for joining us. We know we've got to let you go. Really appreciate it. That was Jim Kelleher, Argus director of research, joining us on that Apple, Meta and Alphabet news.